Over-indebted Kenyans juggling and struggling to repay multiple digital lenders is the grim reality. But regulatory intervention cannot and should not be driven by irresponsible or poor borrowing choices.

However, if unfair and predatory digital lending practices have significantly contributed to over-indebtedness of Kenyans, there is a strong case for regulation.

Kenyans must always have recourse to a competent regulatory authority that can uphold and enforce responsible lending and consumer financial protection.

The absence of this in the digital lending industry continues to expose Kenyans to unethical behaviour.

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Kenyans must also be confident that they are borrowing from digital lenders who are not just licensed, but who are also financially sound, of good repute and who abide by fair lending principles. There must also be regular monitoring and evaluation of these lenders for ongoing viability and compliance. It is a crowded platform of 49 digital lenders, many of whom are privately held and their financial information is not readily available to the public.

Oversight will promote transparency and the requisite scrutiny, including of foreign digital lenders.

But beyond the consumer, there is an even stronger case for regulation if the financial system is vulnerable to risks digital lending industry risks.

Were the industry to experience shocks or duress by a group of digital lenders or a single significant one, there would likely be amounts at risk of loss within the financial system and impact to financial institutions.

The full scope and magnitude of these digital lenders credit risk and non-performing loan portfolios are either undisclosed or not accurately known. An unregulated lending industry that is fraught with credit risk and has linkages to the financial system is dangerous.

Regulation will ensure disclosure of all risks facing these digital lenders so that their viability and that of their operations can be accurately determined and mitigating measures put in place.

It is the purview of Kenyan regulators to proactively monitor for risks to the financial system and stress-test its ability to withstand duress.

There cannot be any blind-spots that cloud or impede their view of the vulnerabilities and risks to the Kenyan financial system. Or that could place contingent liability demands upon the central bank’s role as lender of last resort.

Additionally, if the Kenyan financial system is potentially exposed to financial market contagion through foreign digital lenders, this risk should not be downplayed. Oversight of the digital lending industry will ultimately support the macroprudential approach in place to the Kenyan financial system.

While it is a legitimate concern that oversight could stifle innovative fintech digital lending, the risks from leaving this industry unregulated are too significant to ignore.

Never mind that the industry itself has so far shown little interest in self-regulation. The ramifications of consumer over-indebtedness are severe and timely action is required.

Gambling with the stability of the Kenyan financial system is reckless and must be avoided at all cost.

Ms Mutungi is a career international corporate banker and financial services adviser.